Making Tax Digital: roll out is just weeks away

by Iain Mason

Making Tax Digital – HMRC’s initiative to revolutionise the taxation system and put it all online – is just weeks away from being implemented.

At Optimum, we’ve been talking about it for a long time, and are running regular information events for our business clients to explain what Making Tax Digital (MTD) is and how it will affect them.

The Government is running a media campaign to alert businesses, and accounting software providers – such as QuickBooks and Xero – are taking out TV and newspaper adverts. You may have seen the recent ones from Sage, featuring BBC Dragons’ Den’s Peter Jones.

But despite the publicity, it seems many business owners are still unsure of what MTD is, and whether it applies to them. The quick answer is, yes it will apply, if not immediately then as the roll out continues.

So here is our handy guide to MTD, which will come into force for qualifying businesses from April 1.

What is Making Tax Digital

Under Making Tax Digital, businesses will be required to submit information through compatible software, such as QuickBooks, and will no longer be able to use the HMRC portal.

From April 1, VAT registered businesses, with a turnover above the £85,000 VAT threshold, will need to start submitting their VAT returns via MTD for VAT periods starting on or after April 1.

Businesses with a taxable turnover below the VAT threshold can also voluntarily sign up for MTD for their VAT returns.

If a business’s taxable turnover drops below the VAT registration threshold at any point after April 1, they are still required to continue to keep digital records and send HMRC the VAT returns using MTD-compatible software. This obligation doesn’t apply if they de-register from VAT or if they are exempt from MTD for VAT.

What about businesses below the VAT threshold?

These business can still sign up for MTD voluntarily. Businesses can also sign up for MTD for Income Tax.

From 2020, the current plan is that all businesses will be drawn in. Ultimately, all tax returns, not just those for VAT, will need to be submitted quarterly through MTD.

There some exemptions from MTD. These include:

• businesses run entirely by practicing members of a religious society whose beliefs are incompatible with the requirements of the regulations (for example, those religious beliefs prevent them from using computers)
• cases where it is not reasonably practical to use digital tools to keep business records or submit returns, for example due to age, disability or remoteness of location
• cases where the business owner is subject to an insolvency procedure.

But for by far the majority of businesses Making Tax Digital cannot be avoided. If you run a business now is the time to act, to ensure you and the software you use are fully compliant.

If you have any concerns or queries about Making Tax Digital, how it affects your business and how we can help please get in touch with our tax specialists.